Press Report : Nano fails to hide terrible year

Next Monday, Tata will launch the Nano, the mini-car set to revolutionise the bottom end of the global automotive market with a starting price of Rs100,000 ($1,996) for the most basic petrol-driven version.

The Indian industrial group stripped out costs by giving the car just one ­windshield wiper, tubeless tyres, seats with integrated headrests, and a centre-mounted instrument panel which can be used across both left- and right-hand drive variants. Tata ­managed to keep its promise to create a “one-lakh” (100,000) car thanks in part to the crash in world commodity prices last year.

But no amount of public relations hype for the Nano will disguise what has been a terrible year for one of India’s most prestigious corporate names. Tata Motors, whose core business remains trucks, has been caught in a perfect storm of sinking sales and tightening debt markets that has brought automakers around the world to their knees.

Tata bears the additional burden of its ill-timed decision to buy the luxury Jaguar and Land Rover marques from Ford Motor early last year for $2.3bn. Tata was drawn to the brands largely by the prospect of technology transfers from Land Rover to its own homegrown sports utility vehicle range.

It ignored analysts’ concerns that the two premium brands did not mesh with its existing product range of trucks, buses, and mid- to low-end cars mostly for emerging markets. Spiking petrol prices, contracting credit, and plummeting demand for large cars have hit the two brands – which have no small cars in their current lineup – especially hard.

Land Rover’s sales are down 45 per cent year to date from record levels in 2007, and Jaguar’s are 6.9 per cent higher, thanks mostly to its well-received new XF model. Tata has injected hundreds of millions of pounds into them since the acquisition. Like most other UK carmakers, the group has axed agency workers, cut production hours, and opened a voluntary redundancy programme.

The car will thus do little on its own to solve Tata’s debt problems, much less the issue of what to do if Jaguar and Land Rover continue to make losses. The group has yet to report financial results for the UK carmakers, but is expected to as early as next month in its fiscal-year results.

In India, Tata’s group domestic revenue plunged 32 per cent in the final quarter of last year to Rs47.6bn. Its debt rose sharply, from Rs40bn at the end of the last fiscal year in March 2008 to Rs135bn now, including the $3bn it borrowed to buy Jaguar/Land Rover.

Including that debt, the group’s debt to equity now stands at more than two times, analysts say, one of the highest levels among India’s largest companies. Tata declined to comment on its debt refinancing plans.

The Nano could help generate some much-needed cash flow. Jatin Chawla, an analyst at IIFL, a Mumbai brokerage, calculates that even though initial production of the minicar will fall short of original plans for about 250,000 units a year, it could attract about 200,000 orders, which the group could securitise to raise money. Early buyers of the Nano will be asked to join waiting lists.

The Nano will be the cheapest car by far on the price-sensitive Indian market, giving Tata a first-mover advantage. Renault and Nissan, through a joint venture with the scooter maker Bajaj, plan to launch a low-cost car selling for about $3000, but it is unlikely to reach the market before 2012.

But analysts say commercial vehicles will remain the main source of Tata Motors’ profits and cash flow, followed by conventional passenger cars. The Nano will have a profit margin of only about 5 per cent, estimates Frost & Sullivan analyst Vignesh Chandran.

The car will thus do little on its own to solve Tata’s debt problems, much less the issue of what to do if Jaguar and Land Rover continue to make losses. The group has yet to report financial results for the UK carmakers, but is expected to as early as next month in its fiscal-year results.

“The big concern clearly is JLR,” says Mr Chawla. “There are going to be big operating losses there, and then Tata would have to raise further debt to sustain that operation.”

Faced with challenges on this scale, the Nano will not be the panacea the Tata Group might once have hoped.

‘While it might turn out to be significant over time – it’s an interesting product – that might not be the case in the short term,’ said Manuel Guerena, credit analyst with Standard & Poor’s.

Clive claims that his interest in the BMC>MG story dates back to his childhood in the 1960s when the family’s garage premises were leased to a tenant with an Austin agency. However, back in the 1920s and 1930s, his grandmother was one of the country’s first female Garage Proprietors so cars probably run in his genes! Admits to affairs with Alfa Romeos, but has more recently owned an 06/06 MG TF 135 and then a 15/64 MG3 Style… Clive, who was AROnline’s News Editor for nearly four years, stood down from that role in order to devote more time to various Motor Racing projects but still contributes articles on as regular basis as his other commitments permit.

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